CORPORATE EXP. OFFICE PRODUCTS, INC. v. Phillips

• Decision Date: 17 April 2003
• Docket Number: No. SC01-2741.,SC01-2741.
• Parties: CORPORATE EXPRESS OFFICE PRODUCTS, INC., Petitioner, v. Doug PHILLIPS, et al., Respondents.
• Court: Florida Supreme Court

847 So.2d 406

CORPORATE EXPRESS OFFICE PRODUCTS, INC., Petitioner, v. Doug PHILLIPS, et al., Respondents.

No. SC01-2741.

Supreme Court of Florida.

April 17, 2003.

Allan H. Weitzman and Sarah A. Mindes of Proskauer Rose LLP, Boca Raton, FL, for Petitioner.

Keith F. White and Kimberly Doud of Broad and Cassel, Orlando, FL, for Respondents.

PARIENTE, J.

We have for review Phillips v. Corporate Express Office Products, Inc., 800 So.2d 618 (Fla. 5th DCA 2001), which expressly and directly conflicts with Sears Termite & Pest Control, Inc. v. Arnold, 745 So.2d 485 (Fla. 1st DCA 1999). We have jurisdiction. See art. V, § 3(b)(3), Fla. Const.

FACTS

This case involves the enforceability of noncompete agreements against former employees. Corporate Express Office Products, Inc. (Corporate Express) sought to enforce noncompete agreements against respondents Edward Goff, Doug Phillips, and Lori Farrell. The former employees raised as a defense that the noncompete agreements had been entered into with prior employers and not with Corporate Express. Because one corporate acquisition by Corporate Express was initially accomplished through a 100 percent stock purchase, as occurred in the conflict case of Sears Termite, and the other corporate acquisition occurred through a sale of assets, we explain the facts of each acquisition separately.

The first factual scenario involved employees Phillips and Farrell. In 1986, Phillips signed a noncompete agreement with his employer, Bishop Office Furniture Company (Bishop). In 1989, Farrell signed a noncompete agreement with Bishop. Neither agreement included an assignment clause. In 1997, Corporate Express of the South, Inc. (CES) purchased 100 percent of Bishop's stock. The stock purchase agreement between Bishop and CES listed the noncompete agreements with Phillips and Farrell. CES operated the business under the Bishop name until 1998, when Bishop was merged into CES. Shortly thereafter, CES merged into Corporate Express of the East, Inc. (CEE). CEE then changed its name to Corporate Express Office Products, Inc. The second scenario began in 1986 when Goff signed a noncompete agreement with his employer, Ciera Office Products (Ciera). In 1996, Ciera sold its assets, including the noncompete agreement with Goff, to CES. Goff executed a consent to Ciera's assignment of his noncompete agreement to CES. Goff did not execute any additional consents to assignment after CES merged with CEE and then changed its name to Corporate Express.

Like Bishop and Ciera, Corporate Express is engaged in the business of selling office furniture and business equipment. Phillips, Farrell, and Goff remained continuously employed with CES from the time of the corporate acquisition through the merger into CEE and the renaming of CEE as Corporate Express. In 2000, the employees terminated their employment with Corporate Express and joined a different employer, allegedly in violation of their noncompete agreements.

The terms of the noncompete agreements precluded the employees from competing against their employers or soliciting the employers' customers for one year following the termination of employment. Further, the agreements covered seven Florida counties, which were the territories serviced by respondents. Corporate Express sued Goff, Phillips, and Farrell and their new employer for unlawful use of trade secrets and breach of the noncompete agreements. Corporate Express sought a preliminary injunction to enforce the agreements.

The former employees asserted that because the noncompete agreements did not contain a clause authorizing assignment and were in fact never assigned to Corporate Express, the noncompete agreements could not be enforced. The former employees also argued that the agreements were unreasonable as to duration and geographic scope. The trial court found it "undisputed that the series of changes that Bishop and Ciera underwent before ultimately becoming known as Corporate Express were mergers, not dissolutions." The court relied on Sears Termite, which held that because a 100 percent stock purchase does not involve the dissolution of the corporate entity, a noncompete agreement is enforceable by the purchasing corporation without an assignment. Based on Sears Termite, as well as Goff's consent to the assignment of his agreement to CES and a finding that the time and area restrictions in the agreements were reasonable, the trial court granted the preliminary injunction that provided in pertinent part:

Defendants ... are enjoined from engaging in conduct that is in violation of the noncompete agreements that Phillips, Goff, and Farrell entered into as set forth in part herein, and that is in violation of Florida statutory and common law until further order of this Court.

On appeal, Phillips, Farrell, and Goff asserted that Corporate Express had no legal right to enforce the noncompete agreements because Corporate Express was not their employer when the agreements were made. See Corporate Express, 800 So.2d at 618

. The Fifth District agreed, holding that the former employees' noncompete agreements with Ciera and Bishop did not bind them to Corporate Express as the successor to their original employers. See id. at 620. Acknowledging the trial court's reliance on Sears Termite, the Fifth District rejected its reasoning by explaining:

We understand how the trial court could be led astray by Sears Termite. We simply do not agree with the rationale of that case. The fact that after the change in ownership or stock sale or name change, liabilities or property rights are not changed, is irrelevant to the issue in this case. Equally irrelevant to our analysis is the fact that one corporation is dissolved and a new entity created.

We focus instead on the reality that Goff, Phillips and Farrell worked for Ciera and Bishop Office Furniture Co. Those companies had a culture and mode of operation unique to themselves. Corporate Express had a culture and mode of operation different from Bishop or Ciera. Both Phillips and Farrell signed non-compete agreements with Bishop, in which Bishop is referred to as "the Employer." Goff's non-compete agreement refers to his employer as "Ciera Office Products, Inc." or "the Employer." There is no language in any of the agreements indicating that the employee is agreeing to be bound to the employers' successors or assigns. Thus, because Corporate Express did not contract with any of the former employees for new non-compete agreements, it cannot be considered "the Employer" that is identified in the agreements and the authorizing statute.

Corporate Express, 800 So.2d at 620 (emphasis supplied).¹

DISCUSSION

The 1986 noncompete agreements between Goff and Ciera, and Phillips and Bishop, and the 1989 noncompete agreement between Farrell and Bishop, are governed by section 542.33, Florida Statutes (1985), which states in pertinent part:

(2)(a) ... [O]ne who is employed as an agent or employee may agree with his employer[ ] to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a reasonably limited time and area, ... so long as such employer continues to carry on a like business therein. Said agreements may, in the discretion of a court of competent jurisdiction, be enforced by injunction.

This statutory provision applies to noncompete agreements entered into before July 1, 1996, at which time section 542.33 was replaced by section 542.335, Florida Statutes (Supp.1996). See Ch. 96-257, §§ 1-2, at 983-87, Laws of Fla.² Section 542.331, Florida Statutes (2002), specifically provides that the repeal of section 542.33 does not affect restrictive covenants entered into before July 1, 1996.

The question in this case is whether the nature of the business transaction affects whether a consent to an assignment of a noncompete agreement is necessary either in the original agreement or in connection with the subsequent transactions.³ The types of transactions relevant to this case are an asset sale, a 100 percent stock sale, a merger, and a name change.

The Fifth District held that regardless of the nature of the business transactions involved, Corporate Express could not enforce the noncompete agreements without a consent by the employees to assignment. See Corporate Express, 800 So.2d at 620-21

. In contrast, the First District in Sears Termite held that a consent to an assignment of the noncompete agreement was not required in a 100 percent stock purchase by one corporation of another because the stock purchase did not result in a dissolution of the corporate entity. See

745 So.2d at 486.

In addressing this conflict, we begin by reviewing Schweiger v. Hoch, 223 So.2d 557 (Fla. 4th DCA 1969), the case relied on by the Fifth District. Schweiger involved a noncompete agreement that had been entered into with a partnership. The subsequent withdrawal of a partner caused the dissolution of the original partnership and the creation of a new partnership. See id. at 558. Under those factual circumstances, the Fourth District held:

When the initial partnership was dissolved and the new one created, the defendant's continued employment could not in itself be construed as sufficient knowledge and consent to conclude that the parties intended the original contract to be assigned or that the assignment was consented to or ratified by the defendant.

The contract not to compete was for the benefit of the employing firm and when the firm changed it was incumbent upon the new firm to then have a new contract not to compete entered into. Naturally it would be the responsibility of the employee to then sign the contract or the employer could release him. It would not be the duty of the employee, when the firm was changed, to approach the employer and repudiate the contract which he had with the original employer.

Id. at 559. This reasoning is consistent with the law of partnerships that recognizes that the...